Sharing from remisier. Note ln construction sector
$ECOWLD / 8206 (ECO WORLD DEVELOPMENT GROUP BERHAD) $MNHLDG / 0245 (MN HOLDINGS BERHAD) $COMCORP / 7195 (COMINTEL CORPORATION BHD)
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*Construction Sector Flash Update 🚜
- It was announced yesterday that *Ecoworld is selling a 138.5acres land 🏞️* (freehold, industrial) in Iskandar Malaysia (Johor) *to Microsoft* for c.RM694m.
- *Closing the chapter on DC fears 📖?* Such sizeable capex cycle by global tech Big Boys continues to reiterate Malaysia's data centre landscape is still in inception phase and allays initial concerns on viability of DC pipelines in Malaysia.
- *Expect more DC-related contracts to be awarded in 2025F 🏢.* To recall, *Binastra* won a RM250m DC contract for the Mechanical, electrical, and plumbing (MEP) and Construction, Navigation and Surveying (CNS) last week for AIMS' DC. *MN Holdings* secured a RM163m DC contract in Southern Malaysia in Dec. Meanwhile, *Suncon* (e.RM9-11b DC tenders currently) and *Gamuda* (acquired 389acres land in Negeri Sembilan in Dec 24) are also expected to secure more DC works within 2025.
- *DC construction pipeline is far from exhausting 🔋.* Taking cue from mature DC countries such as US, SG, Japan, UK which has established DC hubs and capacities, Malaysia's DC expansion may still see 2-3 more cycles in phases, continues leveraging on ample and affordable natural resources. *Most visible hints 🧩 can be derived from aggressive landbank acquisitions by global tech big boys* in Malaysia which are sufficient to construct DCs of 1-1.5GW total capacity (just nice within the 7% country cap for AI chips capacity).
- *Quantifying potential contract value for domestic construction companies 🧮.* Taking cue from *Gamuda's Elmina DC* contract (RM1.74b; e.100MW), and comparing another scenario, *Princeton Digital's completed DC* (*150MW;* 31acres; *e. US$1.5b total investments)*, and another: *Suncon's Sedenak for Yondr's* DC (*RM3.5b;* 72.5-acre; *e.300MW*). *1GW* translates to *potential e.RM17-20b contract value?*
- *Further dissecting Ecoworld's land sales to Microsoft 🔬.* Microsoft bought 5 plots of land in Johor totalling c.369acres. While its yet to be clear whether full 369acres will be utilised for DC structure/build-ups (may include utilities/water plant or other core & shells), *we will not speculate on the construction contract value until concrete announcements.*
- That said, *Microsoft's DC pipeline in Malaysia fits well within the 1-1.5GW range,* with *potential >RM30b contract value in many phases* across years. For context, Microsoft previously also committed to *investing US$2.2b (c.RM10.5b)* in cloud computing and AI services in Malaysia throughout 2024-2028.
- *Chip restrictions not a concern, in our opinion💡.* Microsoft is also likely classified as an UVEU. In short, *VEUs are allowed* to: *i)* install at most *7%* of their controlled AI chips *in one Tier 2 country* (outside US); and *ii)* install at most *25%* of their computation AI chips capacity *in all Tier 2 countries* (outside US). Given *Microsoft's* sizeable investments in US, we deem that the *7% AI chips capacity* is *sufficient for such 1-1.5GW DC pipelines in Malaysia.*
- *Who's the most-likely beneficiary?* We think that it may be ☀️🏗️. Also to recall, Suncon secured a RM748m DC project for a US client (not sure who is it😉) back in March 2024.
- *Suncon's DC tenderbooks👷🏻.* In our *physical meeting with Suncon’s management last Wednesday🤓,* we gathered that out of Suncon's current e.RM15-17b tenderbook, e.60-70% are DC-related.
- *While this newsflow reaffirms earnings upcycle for selective Malaysian construction companies,* further monitoring required for coming months on whether Malaysia's DC investment theme is losing investor’s interests and no longer replicate last year’s strong momentum.
- *Recall that we’ve timely downgraded Suncon back to HOLD last Friday* after share price reaching close to our RM4.54 TP, and after share price rebounded >30% since mid-Jan.
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